NEAM Insights

Executive Summary Correlation statistics are measures commonly used to evaluate the relationship between two variables. Asset classes often exhibit different performance tendencies over time. During market rallies or drawdowns some assets may outperform each other in different ways. These relationships can help reduce volatility across market cycles for diversified investment portfolios. This is also the case for the various types of insurance products sold by U.S. Property and Casualty insurance companies, which often have divergent claims development and loss cost characteristics over time. Moreover, assets and liabilities for P&C insurers usually do not behave in a uniform way, supporting diversification at the enterprise level as well. Read More

Executive Summary To understand how life insurers have navigated the recent period of elevated interest rates, we updated our analysis of the industry’s net investment spread (NIS)1 - the difference between the earned rate on invested assets and the estimated guaranteed rate credited to insurance contracts.2 Read More

EXECUTIVE SUMMARY In 2024, fraternal insurers’ net investment income (as a percentage of invested assets) surpassed that of the broader life insurance industry, driven by stronger returns from alternative investments. However, these alternative investments were largely concentrated among a small number of large fraternal writers. Despite this outperformance at the total portfolio level, the book yield of the fraternal composite’s fixed income portfolio remained below that of the life industry, with the gap widening since interest rates began rising in 2022. Notable differences in the duration and sector allocation within the fraternal composite’s fixed income holdings likely contributed to the lag in book yields, despite comparable credit quality between the two groups. Read More

EXECUTIVE SUMMARY This article examines the enterprise profile of U.S. workers’ compensation (WC) insurers and evaluates their investment performance relative to the broader U.S. property and casualty (P&C) industry. WC insurers tend to carry more invested assets than other P&C insurers and typically exhibit lower premium-to-surplus ratios, reflecting the longer-tailed nature of the WC business. They have adopted a more conservative investment approach, reflected by lower allocations to risk assets, which has resulted in net investment income (%) trailing that of the broader P&C industry over the past decade. Within fixed income portfolios, despite maintaining comparable average credit quality and longer duration relative to the P&C industry, the WC composite generated lower book yields. A focused assessment of sector allocations and duration/quality strategies may reveal opportunities to enhance fixed income portfolio performance. Notably, WC insurers that assumed greater investment risk, particularly larger firms, generally achieved higher book yields, suggesting that selective risk-taking may serve as a lever for improving investment outcomes. Read More

Executive Summary In 2024, the U.S. health insurance industry’s net investment income (%) reached a decade-high of 4.16%, supported by a prolonged high-interest rate environment and increased contributions from cash and short-term investments. The fixed income book yield also continued its upward trajectory, reaching a decade-high following notable improvements during 2022 - 2023. Read More

Executive Summary In this article, we delve into the enterprise profile of U.S. medical professional liability (MPL) insurers and assess their investment performance relative to the broader U.S. property and casualty (P&C) industry. The MPL composite trailed the P&C industry in net investment income (%), partly due to its more conservative asset allocation. Within the fixed income portfolio, despite having similar average credit quality and duration relative to the broader P&C industry, the MPL composite’s book yield was lower, though the gap has narrowed recently. An in-depth comparative analysis of sector allocation and duration/quality strategy may point to opportunities to improve portfolio yields. MPL Insurers that assumed greater investment risk, particularly larger firms, tended to realize higher book yields, suggesting that selective risk-taking could serve as a lever for enhancing investment performance. Read More

Executive Summary Steep unrealized investment losses during the COVID-19 pandemic and the rapid rate increase in 2022 have led insurers and some regulators to refocus on stress and scenario testing. This article explores metrics for quantifying losses during periods of stress, suggesting that incorporating them into portfolio construction and rebalancing can lead to more informed investment recommendations that better align with insurers’ risk-adjusted return preferences. Read More

Executive Summary In 2024, the U.S. life insurance industry’s net investment income increased by 25 bps, extending the upward trajectory observed in 2023. This growth was primarily supported by persistently elevated interest rates. Read More

Executive Summary In 2024, the U.S. Property and Casualty (P&C) insurance industry’s net investment income reached a decade high of 3.63%, supported by elevated interest rates and increased equity dividend income. Over the past three years, one large insurer has notably influenced industry asset allocations by reducing its exposure to Schedule BA assets and equities, while increasing holdings in cash and short-term investments. Excluding this outlier, the industry’s overall asset mix has remained relatively stable. Meanwhile, the fixed income portfolio experienced a continued increase in book yield, along with improved credit quality and stable duration. The industry’s allocation to tax-exempt municipal bonds declined steadily, replaced by growing investments in corporate bonds and structured securities. Read More

Asset-Centric Optimization An asset-centric optimization focuses solely on the investment portfolio, aiming to maximize the investment return based on the risk tolerance towards the assets, without directly considering liabilities. Read More